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Rentokil Initial shares tumbled 20 per cent on Wednesday after the world’s largest pest control company warned that a slowdown at its key North American business would hit profits.
The plunge wiped more than £2bn from Rentokil’s market value. The London-listed company said adjusted profits before tax and amortisation this year would be about £700mn, lower than the £776mn analysts expected and the £766mn it made last year.
Rentokil’s chief executive Andy Ransom said on Wednesday that the downgrade was a result of a poorly executed turnaround plan, including the integration of its new US branches.
“I’m disappointed in the execution and clearly we’ll be looking at that,” he told analysts on a call, adding he was sticking with his strategy and that the company’s investments into customer retention needed “time to bear fruit”.
The warning is the latest sign of consumer weakness in the US, which accounts for more than half of the company’s sales following its $6.7bn acquisition of Terminix in 2021. The group is now the country’s leading pest control business.
It is also a blow to activist investor Nelson Peltz, whose Trian Partners disclosed a stake in the company in June, saying it would seek ways of improving “shareholder value”. At the time, shares in the company jumped more than 15 per cent on the news.
The troubles at the North American business would shave about £50mn from Rentokil’s adjusted operating earnings, the company said.
Disappointing sales during its “peak season” in the region left its operations with higher costs, Ransom told analysts.
“The trading performance in July and August was lower than expected, and we now expect North American organic revenue growth in the second half to be in the region of 1 per cent,” he said.
Its other businesses were performing well, the company said.
The company also pinned some of the blame for the profit shortfall on the strength of the pound against the dollar.
JPMorgan analysts said they did not expect Rentokil to be able to catch up with its peers, like US group Rollins, by the end of the year while simultaneously integrating its US branches. “We see further risks of the integration timeline being pushed to the right,” they warned.
Rentokil’s acquisition of Terminix, which is headquartered in Memphis, initially sent the UK group’s shares higher as investors cheered the promise of expansion in one of the world’s biggest pest control markets.
However, the deal has failed to meet expectations.
Ransom, however, said that the issues at Rentokil were not a result of market weakness.
“There’s plenty of people talking the economy down but we’re not seeing that,” he said on a call with analysts. “So I can’t I can’t point to that. This is a manifestation of execution challenges . . . It’s not a market phenomenon.”
